InvestorQ : I want to understand what is ASBA application and how does it work in practice when I apply for an IPO?
NISHA Nayak made post

I want to understand what is ASBA application and how does it work in practice when I apply for an IPO?

Dilmini Mercia answered.
2 years ago

One of the key developments in the last few years in the IPO realm was the introduction of Applications Supported by Blocked Amounts (ASBA). The ASBA application process is simpler and also more transparent because it does not unnecessarily lock in the funds of the IPO investor.

Let us see how the ASBA works?

Under ASBA in IPO, you authorize the bank to block an amount equal to your application amount while applying for an IPO. The application amount is not immediately debited to your bank account at the time of application but it is only blocked. That means; you continue to earn interest on these amounts although you cannot issue cheques against that amount. It is only when shares are allotted to you that the amount is actually debited to your bank account. Suppose you applied for 500 shares and got allotted only 200 shares, in that case the unused amount will be unblocked and you will now be able to use that amount freely for other purposes. However, ASBA is only permitted in case of book-built issues and not in case of fixed price issues. If you have an online account with your broker then the entire process becomes a lot simpler. Where the broker is also a banker, the broker may insist that your ASBA application should only come through the 3-in-1 account.

An ASBA application can be withdrawn till the time the issue is open. So if the issue is open for 3 days then before the cut-off timing announced by the IPO you need to cancel or withdraw your application. There is a subtle issue for you to remember here. Your application can only be cancelled online. Once the application is cancelled then you need to approach the Registrar & Transfer Agent (RTA) for the IPO withdrawal with the cancellation acknowledgement copy. Only after the RTA withdraws the application that the blocked amount will be unfrozen and you will again be able to use your bank funds.

ASBA is available for online trading accounts and for offline trading accounts

ASBA facility can be availed irrespective of whether you are using the online trading facility or the offline order placement. While the ASBA application for your online IPO can be placed through your trading account; in case of physical application you need to fill up the ASBA application form and submit it to your broker or to the collecting bankers. Ensure that your bank details are properly entered to avoid rejection due to data mismatch.